Tuesday, 30 September 2014

Companies Act 1956: Prospectus

Prospectus is an offer document
by which the company offers its shares and debentures to the public hence by
prospectus company will offer its securities to public.

In Nash Vs Lynde case the M.D of the company issued a letter to the
director of company and offered some securities the director sent the letter to
the solicitor of the company the solicitor
to his client and the client to his friend and the friend sent it to his BIL,
in this case it was decided by the court that these are all personnel offers
and none of the above are public offers. In this case it was further decided
that a prospectus must be issued to the public and it must not be a personnel
offer between two persons.

Provisions regarding
prospectus:

When a company issues prospectus
then company has to fulfil some legal requirement of companies’ act these legal
requirements are necessary otherwise prospectus cannot be issued.

Dating of prospectus:-

Company Law: Dating of Prospectus

When a prospectus is issued then
a date of formation of prospectus is written on the prospectus this date is
known as date of prospectus. The date of prospectus is relevant for issue of
securities hence every prospectus must have a date.

A prospectus is issued to public
within ninety (90) days of the dating otherwise the prospectus becomes invalid
and securities cannot be issued by this prospectus.

When a prospectus is dated than
company has a choice to write any date on the prospectus. The dating of
prospectus is decided by the directors of company and not by the ROC.

Registration of prospectus:-

Every prospectus must be
registered with the registrar of companies.

Vetting of
prospectus: The company will prepare draft prospectus and copies of draft
prospectus will be sent to ROC, SEBI and the Stock exchanges where shares are
to be listed.

The ROC, SEBI
and Stock Exchanges will suggest corrections and modifications in the
prospectus and the company will have to implement these modifications in the
prospectus. This whole procedure is known as Vetting of Prospectus.

After vetting
a final prospectus is prepared and copies of the final prospectus are again
given to the ROC, SEBI and Stock exchanges. The ROC will register the
prospectus and the prospectus now can be issued to public.

When the
prospectus is registered then it is necessary that the prospectus in properly
signed and the consent of experts is taken for issue of prospectus.

Signing of Prospectus:

When a prospectus is signed then
the signing must be done according to the provisions of companies act. In this
concept the M.Ds’ and all the directors must sign the prospectus hence once the
prospectus is signed only then it will be registered.

Expert’s consent:

Every company has some experts
who authorize the issue of securities so of the company wants to issue
prospectus then it must take the written consent of experts for issuing the
prospectus.

The experts of a company include
the legal advisers, auditors, other professionals liked architects required for
the business of company.

The company must mention in the
prospectus that experts consent has been taken and prospectus can be issued.

Allotment of securities after prospectus:

When a company issues prospectus
for issue of securities then the allotment of securities must be made within
120 days of dating of prospectus.

If the securities are not
allotted within 120 days then whole application money will become refundable by
the company to the applicants this refund of money must be made within 130 days
of dating of prospectus otherwise the directors of company will be liable to
penalties and they are liable to refund the money personally and the corporate veil is lifted.

Listing of shares on stock exchange.

When a company wants to issue the
securities to public then company must make an application for listing of
securities on some stock exchange. If the company does not get the permission
from the stock exchange then the share cannot be allotted and company will have
to issue the prospectus once again. It is compulsory to make the application
for listing on at least one stock exchange however the company may make
application on more than one stock exchange. In this case the permission of
listing must be received from all the stock exchanges.

Contents of prospectus:

Every prospectus has basic
contents as per companies act 1956 and as per SEBI guidelines in this case
following are the main contents of prospectus.

General information:

These are the information regarding
the company and its background.

Capital Structure:

It includes the share capital and
breakup of share capital.

Terms of issue:

It shows the terms and conditions
of issue of securities. E.g the purpose for which the security is issued.

Particulars of issue:

It includes the manner of making
of application allotment money, time of making calls.

Information regarding the
management:

It contains the information
regarding the management (directors and M.D).

Every prospectus must have all
the contents correctly otherwise the prospectus will become invalid.